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Water Subsidy Policies: A Comparison of the Chilean and Colombian Schemes

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  • AndrÈs GÛmez-Lobo
  • Dante Contreras

Abstract

Analysis of two water subsidy schemes--a means-tested subsidy in Chile and a geographically targeted subsidy in Colombia--shows that the means-tested system is better able to identify poor households than the geographically targeted scheme. However, the overall distributive impact of both schemes is quite similar, at least for the three lowest income deciles, because the amount of benefits per household in the geographically targeted Colombian scheme are differentiated by the socioeconomic classification of household. Despite the relative merits of the Chilean means-tested scheme, targeting errors are still quite large. More than 60 percent of subsidies accrue to households that are above the third decile of the income distribution. If the policy objective in Chile is to benefit a significant proportion of households in the lowest income deciles, then either the targeting mechanism must be improved or the number of subsidies has to increase to take into account these targeting imperfections. In Colombia almost all households receive some kind of benefit, implying an unnecessarily high fiscal cost. An improvement in the targeting mechanism could lower this cost without jeopardizing benefits to lower-income households. Some suggestions for additional research and for improving both schemes are discussed. Copyright 2003, Oxford University Press.

Suggested Citation

  • AndrÈs GÛmez-Lobo & Dante Contreras, 2003. "Water Subsidy Policies: A Comparison of the Chilean and Colombian Schemes," World Bank Economic Review, World Bank Group, vol. 17(3), pages 391-407, December.
  • Handle: RePEc:oup:wbecrv:v:17:y:2003:i:3:p:391-407
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    Citations

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    Cited by:

    1. Felipe Barrera-Osorio & Mauricio Olivera & Carlos Ospino, 2009. "Does Society Win or Lose as a Result of Privatization? The Case of Water Sector Privatization in Colombia," Economica, London School of Economics and Political Science, vol. 76(304), pages 649-674, October.
    2. repec:ebl:ecbull:v:9:y:2007:i:4:p:1-7 is not listed on IDEAS
    3. Whittington, Dale & Nauges, Céline & Fuente, David & Wu, Xun, 2015. "A diagnostic tool for estimating the incidence of subsidies delivered by water utilities in low- and medium-income countries, with illustrative simulations," Utilities Policy, Elsevier, vol. 34(C), pages 70-81.
    4. Patrick Webb, 2005. "Water and Food Insecurity in Developing Countries:Major Challenges for the 21st Century," Working Papers in Food Policy and Nutrition 29, Friedman School of Nutrition Science and Policy.
    5. Herrera, Veronica, 2014. "Does Commercialization Undermine the Benefits of Decentralization for Local Services Provision? Evidence from Mexico’s Urban Water and Sanitation Sector," World Development, Elsevier, vol. 56(C), pages 16-31.
    6. Jaime Torres, Mónica Marcela & Carlsson, Fredrik, 2016. "Social Norms and Information Diffusion in Water-saving Programs: Evidence from a Randomized Field Experiment in Colombia," Working Papers in Economics 652, University of Gothenburg, Department of Economics.
    7. Lehmann, Paul, 2011. "Making water affordable to all: A typology and evaluation of options for urban water pricing," UFZ Discussion Papers 10/2011, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    8. Mauricio Olivera & Felipe Barrera, 2007. "La sociedad gana o pierde como resultado de la privatizacion? El caso de Colombia," Research Department Publications 3231, Inter-American Development Bank, Research Department.
    9. Elena Bardasi & Quentin Wodon, 2008. "Who pays the most for water? Alternative providers and service costs in Niger," Economics Bulletin, AccessEcon, vol. 9(20), pages 1-10.
    10. Georg Meran & Christian von Hirschhausen, 2014. "Increasing Block Tariffs in the Water Sector: An Interpretation in Terms of Social Preferences," Discussion Papers of DIW Berlin 1434, DIW Berlin, German Institute for Economic Research.
    11. Diego Angel-Urdinola & Quentin Wodon, 2007. "Do Utility Subsidies Reach the Poor? Framework and Evidence for Cape Verde, Sao Tome, and Rwanda," Economics Bulletin, AccessEcon, vol. 9(4), pages 1-7.
    12. Marcela Meléndez & Andrés Gómez-Lobo Echeñique, 2007. "Social Policy, Regulation and Private Sector water supply: the case of Colombia," Working Papers wp252, University of Chile, Department of Economics.
    13. Philippe Marin, 2009. "Public-Private Partnerships for Urban Water Utilities : A Review of Experiences in Developing Countries," World Bank Publications, The World Bank, number 2703.
    14. Wang, Yanxiang & Ali Almazrooei, Shaikha & Kapsalyamova, Zhanna & Diabat, Ali & Tsai, I-Tsung, 2016. "Utility subsidy reform in Abu Dhabi: A review and a Computable General Equilibrium analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 55(C), pages 1352-1362.
    15. repec:ebl:ecbull:v:9:y:2008:i:20:p:1-10 is not listed on IDEAS
    16. Mariana Marchionni & Walter Sosa-Escudero & Javier Alejo, 2008. "Efectos Distributivos de Esquemas Alternativos de Tarifas Sociales: Una Exploración Cuantitativa," CEDLAS, Working Papers 0069, CEDLAS, Universidad Nacional de La Plata.
    17. Barde, Julia Alexa & Lehmann, Paul, 2013. "Distributional effects of water tariff reforms: An empirical study for Lima, Peru," UFZ Discussion Papers 14/2013, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).

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